Report: Follow-on funding for UK and European startups becoming increasingly scarce

A new study has exposed the scarcity of follow-on funding for startups across Europe and particularly in UK, which has for the first time been overtaken by France for investments over $5 million (£3.26 million).

In the first half of this year, 28 deals worth over $5 million (£3.26 million) were carried out in France, compared with 25 in the UK and 18 in the DACH region (Germany, Austria, Switzerland), according to analysis of the latest Dow Jones VentureSource data carried out by DFJ Esprit and Go4Venture.

The UK figure represents a massive fall from a historical high of 85 in the same period of time last year. It has also been revealed that the largest untapped pool of investment capital for startups in the UK is still in private hands.

Initial funding availability across Europe remains in a healthy state, with the UK taking the lead with 49 smaller deals compared to 46 in France and 18 in the DACH region.

This, along with the average size of the UK's larger deals standing at $23 million (£15 million) - double that of France's $11 million (£7.2 million) average - has meant that the UK takes the lead in overall investment, with $656 million (£428 million) worth of deals. France racked up a total of $399 million (£260.2 million) and the DACH region $343 million (£223.7 million).

"What this data clearly shows us is that Europe is successfully launching fledgling businesses but there is a scarcity of available capital for the follow-on funding to get them to the next stage. In Silicon Valley the ratio of large investment rounds compared with smaller ones is over 1 to 1 - in this latest data for Europe it is less than half that level," said Simon Cook, CEO of DFJ Esprit.

He added: "From a geographic point of view, the UK is often seen as the US gateway into Europe and many of the leading VC funds in London have strong US links. But UK's historical position is under threat as Governments across Europe use incentives to stimulate innovation and growth. The UK needs to act now to maintain its overall lead within Europe or risk being overtaken."

Image credit: Flickr (Heisenberg Media)